U.S. home sales slowed in November 2015 – partly as a result of the new TRID paperwork traffic gridlock, which reduced the number of closings (somewhat akin to a car driver slamming on their brakes at a busy intersection).
Any time new paperwork is added to mortgage and real estate closings, it takes some time to learn: 1. How to best complete the forms, and 2. How to explain the new forms to clients or other investors.
The National Association of Realtors (NAR) and Realtor.org (http://www.realtor.org/news-releases/2015/12/existing-home-sales-suffer-setback-in-november-fall-to-slowest-pace-since-april-2014) reported that the number of existing home sales reached their slowest selling pace in 19 months in November 2015.
The NAR reported that the total national existing-home sales numbers fell 10.5% to a seasonally adjusted annual pace of 4.76 million.
The new TRID disclosure rules and guidelines went into effect just one month prior in October 2015. The new paperwork has been a bit overwhelming for many real estate agents, lenders, borrowers, buyers, sellers, and escrow and title insurance professionals.
How can a person explain these new disclosure forms to clients or principals if he or she does not fully understand them as well?
Dodd-Frank & The Consumer Financial Protection Bureau
To best understand the origins of TRID, we must first understand the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law by President Barack Obama on July 21, 2010.
The new Dodd-Frank Act brought about significant changes to the financial and real estate professions, which included trying to better improve the disclosure forms, so borrowers truly understand what they’re signing.
Dodd-Frank also brought about the creation of the Consumer Financial Protection Bureau. CFPB is an independent agency of the federal government that is responsible for consumer protection in the financial industry.
Financial entities that are governed by CFPB include banks, credit unions, securities firms, debt collectors, payday lenders, foreclosure relief firms, and other financial firms.
What Is TRID?
TRID is The Consumer Financial Protection Bureau’s “Know Before You Owe” TILA-RESPA Integrated Disclosure form. TRID is so complicated that the title itself is an acronym of two other acronyms – TILA (Truth-in-Lending Act) and RESPA (Real Estate Settlement Procedures Act).
TRID applies to most types of closed-end mortgages secured by real estate. TRID does not typically apply to reverse mortgages, HELOCs (Home Equity Lines of Credit), or mobile or manufactured homes not attached to the land.
TRID was designed to consolidate four mainstream national real estate disclosure forms into just two new forms. The four previous forms prior to the formal introduction of TRID include:
- Good Faith Estimate
- Initial Truth-in-Lending Statement
- HUD-1
- Final Truth-In-Lending Statement
After the start of TRID, the Good Faith Estimate and the Initial Truth-In-Lending Statement were merged into a new Loan Estimate form. The previous HUD-1 and Final Truth-In-Lending Statement were merged into a new Closing Disclosure.
One of the big benefits for consumers is that the new Loan Estimate form provides more detailed information, such as the estimated monthly mortgage payments and the total amount of actual cash needed to close the loan.
Many of the old Good Faith Estimate forms didn’t provide borrowers with those details prior to the closing of their escrows.
Lenders, instead of title or escrow companies, are now fully responsible for providing borrowers with the Closing Disclosure statements. It’s another added layer of work for lenders, slowing down the underwriting process.
There are much shorter time periods for delivery of these disclosure forms to consumers. These delivery time periods can vary between three and seven business days from the start of the deal and near the closing of the deal.
A number of factors that can change these time periods are quite confusing to consumers–and even experienced lenders and real estate agents.
Lenders and real estate agents have been asked to learn about TRID by reading the entire detailed explanation provided by CFPB.
Not surprisingly, there haven’t been too many real estate professionals who have actually read these 1,888 page guidelines:
http://files.consumerfinance.gov/f/201311_cfpb_final-rule_integrated-mortgage-disclosures.pdf
The Older & Newer “New Deal” Programs
The two most significant negative financial eras of the past 100 years were The Great Depression (1929 to 1939) and the ongoing Credit Crisis (2007 to present day).
Both “boom and bust” cycle eras were preceded by relatively “easy money” times such as The Roaring Twenties, when access to bank and margin loan funds were relatively easy until the official start of The Great Depression in October 1929, and the “EZ Doc, Subprime Mortgage” era between the late 1990s and 2006 or 2007.
Once these financial markets imploded, new governmental regulations and agencies were created, such as the introduction of President Franklin D. Roosevelt’s New Deal.
Both HUD (Department of Housing and Urban Development) and FHA (Federal Housing Administration) were established within the New Deal program in order to boost housing and the financial markets.
The modern-day version of the New Deal is quite possibly the Dodd-Frank Act and the Consumer Financial Protection Bureau.
The New Deal program could be simplified as being described as the “3R’s” (“Relief, Recovery, and Reform”). Today, a high percentage of Americans are also seeking more “relief, recovery, and reform” from lenders and the federal government, so that the financial and housing markets improve. We’ll see if these newer agencies and regulations boost our economy as well.
Cash & Seller Financing Opportunities
In the short term (while more people try to understand TRID), all-cash sales are increasing in places like California as noted by the 34.3% cash sales year-over-year increase in November 2015.
All-cash buyers still are the most favored buyers partly due to increasing mortgage paperwork and longer escrows.
The reported median priced home sold in California for November 2015 was $415,000, a 2.5% increase from the reported $404,750 sales numbers in October 2015.
These numbers are quite distorted, since it’s more of a reflection of an increasing number of expensive properties selling to all-cash buyers, while more affordable homes priced at $400,000 and below are not selling as quickly due to escrows being delayed after the introduction of TRID.
The California Association of Realtors (CAR) reported that existing single-family home sales in Los Angeles County were down – 28.5% in November as compared with October. Were these dramatic declines due to TRID, high prices, or other factors?
There may be a period of time when frustrated sellers are quite motivated to structure seller-financed deals to creative buyers using AITDs (All Inclusive Deeds of Trust), Land Contracts, Subject To deals, or Lease Options if they can’t find any wealthy all-cash buyers or qualified mortgage buyers.
Savvy investors should keep a close eye on the “Days on Market” trends for properties in their area. The longer it takes to sell a property, the more open-minded a seller becomes to accepting seller-financed terms.
To learn more about the Consumer Financial Protection Bureau and the TRID guidelines, here is the link to their website: >http://www.consumerfinance.gov/regulatory-implementation/tila-respa/
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